Smuggling of cigarettes rising fast, says Ficci report

Increasing taxes on cigarettes provide a lucrative opportunity for tax evasion due to tax arbitrage between the country of exports and in the importing country, the Ficci-Cascade report said. Photo: Bloomberg

New Delhi: India is witnessing a quicker rise in smuggling of cigarettes, with their seizure registering the highest annual increase of 79%—even more than that of gold—says a report by Ficci-Cascade.

In 2015-16, Rs162 crore worth of smuggled cigarettes were seized, up from Rs90.75 crore in 2014-15, according to the report titled “Invisible Enemy– a threat to our national interests”.

Smuggled fabric and silk yarn saw the second-highest increase in seizure at 73.8%, with Rs41.78 crore worth of items caught in 2015-16 compared with Rs24.03 crore in 2014-15.

Gold, on the other hand, saw 61.6% increase in seizure, with Rs1,119.11 crore of smuggled yellow metal confiscated in the last fiscal compared with Rs692.35 crore in 2014-15.

“The primary reason for the rise of smuggled cigarettes into India is the high taxes. Cigarettes smuggling is a low-risk, high-reward criminal activity because high taxes on cigarettes induce great financial incentive for smugglers to earn huge profits,” the report reasoned.

Persistently, increasing taxes on cigarettes provide a lucrative opportunity for tax evasion due to tax arbitrage between the country of exports and in the importing country, the Ficci-Cascade report added.

On the other hand, the smuggling in fabrics and silk and yarn is primarily driven by the demand-supply gap and the dependence on imports, it said. India’s dependence on imports of silk and yarn has seen a consistent increase over the last 5 years, having grown to 1.12% from 0.8% of the total pie.

This clearly indicates that domestic production is highly insufficient to meet the growing domestic demand, in turn fueling smuggling in the sector, the report said.